May Economic Review says frail global demand may challenge FY24 growth outlook


“India appears poised to sustain its growth in a more durable way than before,” said the Finance Ministry. Nonetheless, it added, “it is no time to rest on laurels nor risk diluting the painstakingly and consciously achieved economic stability. If we are patient, the rising tide will lift all boats as it has begun to.” The Finance Ministry on Thursday released the Annual Economic Review report for the month of May 2023. It added that the factors that can constrain the pace of growth include “escalation of geopolitical stress, enhanced volatility in global financial systems, sharp price correction in global stock markets, high magnitude of El-Nino impact, and modest trade activity and FDI inflows owing to frail global demand”. And if these developments deepen and dampen growth in the subsequent quarters, the external sector may challenge India’s growth outlook for FY24. 

The Annual Economic Review also stated that a strong quarter pushed India’s GDP to 7.2 per cent in FY23 which is higher than the 7 per cent estimated in February. “This upside to the growth estimate takes the growth momentum deep into the current year,” it said. “The country’s impressive growth experience in FY23, when the world economy was rocked by inflation and restrained by monetary tightening, is a narrative on what works or does not work for the Indian economy,” it added. 

So what really worked for India? The Finance Ministry said that domestic demand, rising employment levels among other things, worked for India while inflation emerged as the major challenge in FY23 as it did for the rest of the world. “Rising employment levels further worked for India as it increased inclusivity and strengthened domestic demand,” it said. It added that an increase in repo rate has worked for India, enabling a 40-45 per cent of transmission in lending and deposit rates by the end of FY23. “A critical cog in the wheel of economic growth in FY23 was the disciplined fiscal stance of the central government,” the ministry said. The year ended with a lower fiscal deficit (as per cent of GDP) compared to the previous year.

Further, the Annual Economic Review stated that the Indian economy has carried the momentum from FY23 into the current fiscal year. “High frequency indicators paint a healthy picture of the state of the economy. Urban demand conditions remain resilient, with higher growth in auto sales, fuel consumption and UPI transactions,” it said while adding that rural demand is also on its path to recovery, with robust growth in two and three wheelers sales. Goods and Services tax collection, Purchasing Managers’ Index (PMI) for the manufacturing and services sector too continues to expand.

On the global front, the uptick in economic activity during the first quarter of 2023 has also continued in the second quarter, as evident in the expansion of the global Composite PMI. 

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